What Is the 75-5-10 Rule in Mutual Funds?
The 75-5-10 rule is a US legal test for calling a mutual fund diversified: for 75% of its assets, a fund can put no more than 5% in one issuer or own more than 10% of that issuer's voting shares.
The short answer
It comes from Section 5(b)(1) of the US Investment Company Act of 1940. It doesn't govern Indian mutual funds, and it isn't a rule for your own portfolio. Indian funds follow SEBI's limits instead.
Key Takeaways
- 75: the test applies to at least 75% of the fund's total assets.
- 5: within that part, no more than 5% of total assets can be in one issuer.
- 10: within that part, the fund can't own more than 10% of an issuer's voting securities.
- SEBI sets India's limits, including a cap on how much of a scheme can sit in one company's shares.
1What 75, 5 and 10 mean
The three numbers work together. Take a US fund with ₹1,000 crore of assets, using rupees only to keep the example simple:
| Number | What it limits | In this fund |
|---|---|---|
| 75 | Share of assets the test applies to | At least ₹750 crore |
| 5 | Maximum in one issuer, as a share of total assets | ₹50 crore per issuer |
| 10 | Maximum share of an issuer's voting securities | 10% of that company |
The remaining ₹250 crore isn't covered by the test, so it could be far more concentrated. Passing means a fund can call itself diversified under US law. It doesn't mean the fund is low risk.
2Does the 75-5-10 rule apply in India?
No. It's part of US law. Some Indian articles present it as a mutual fund rule, but SEBI's regulations are what bind Indian schemes. SEBI (Mutual Funds) Regulations, 2026 replaced the 1996 regulations, and they leave the detailed concentration limits to prudential limits set by SEBI.
| Point | US 75-5-10 test | India |
|---|---|---|
| Set by | Investment Company Act of 1940 | SEBI |
| Purpose | Decides whether a fund may be labelled diversified | Sets limits every scheme must follow |
| Single-company equity | 5% of total assets, on 75% of the portfolio | 10% of a scheme's NAV under the 1996 regulations; now set by SEBI as a prudential limit |
| Debt | Same issuer test | Separate issuer limits based on credit rating |
Index funds and sector funds follow their own mandates, so check the scheme document for the limits that apply. The SID and KIM guide shows where to look. For category rules, see the SEBI 80% rule.
3What to check in your own portfolio
- Top 10 holdings: a high share in a few stocks means more concentration, whatever the fund's label says.
- Overlap: two diversified funds can own the same stocks. Compare them with the fund overlap checker.
- Number of funds: more funds doesn't always mean more diversification. See how many mutual funds to own.
Sources & References
Frequently Asked Questions
Common questions about the 75-5-10 rule.
What is the 75-5-10 rule?
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Is the 75-5-10 rule a SEBI rule?
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What happens to the remaining 25% under the rule?
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How much can an Indian mutual fund invest in one stock?
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Does following the rule make a fund safe?
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Should I use 75-5-10 for my own investments?
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FundSageAI is an analytics platform. Content on this blog is for educational purposes only and does not constitute financial advice. Always consult a SEBI-registered investment advisor for personalised recommendations.